Redistributive politics under ambiguity

Javier Donna

Social Choice and Welfare, 2024, vol. 62, issue 3, No 7, 583-607

Abstract: Abstract The conflicting views that agents and voters have about redistributive taxation have been broadly studied. The literature has focused on situations where the counterfactual outcomes that would have occurred had other actions been chosen are observable or point identified. I analyze this problem from an econometric standpoint, in a context of ambiguity. The extent to which individuals are responsible for their own fate is partially identified. Agents have partial knowledge of the relative importance of effort in the generation of income inequality and, therefore, the magnitude of the incentive costs. I present a simple model of redistribution and show that multiple equilibria might arise even in the presence of ambiguity: One where the rate of redistribution is high, agents are pessimistic, and exert low effort (Pessimism/Welfare State), and another where the redistribution tax rate is low, agents are optimistic, and exert high effort (Optimism/Laissez Faire).

Date: 2024
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Working Paper: Redistributive Politics under Ambiguity (2023)
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DOI: 10.1007/s00355-023-01500-3

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